122 T.C. No. 3
UNITED STATES TAX COURT
FLORIDA COUNTRY CLUBS, INC., A FLORIDA CORPORATION, SUNCOAST COUNTRY CLUBS, INC., A FLORIDA CORPORATION, DEBORAH A. HAMILTON, AND JAMES R. MIKES, Petitioners v. COMMISSIONER OF INTERNAL REVENUE, Respondent
Docket No. 9160-02. Filed February 3, 2004.
Petitioners (Ps), two S corporations and two shareholders of those corporations, received letters of proposed deficiency with respect to their 1993 and 1994 Federal income tax returns, which allowed Ps an opportunity for administrative review in Respondent’s (R) Appeals Office. After Ps protested the proposed deficiencies with the Appeals Office, the parties settled without R’s issuing either an Appeals Office notice of decision or a notice of deficiency.
Ps filed a petition with this Court under sec. 7430(f), I.R.C., and Rule 271, Tax Court Rules of Practice and Procedure, for reasonable administrative costs. R moved for a summary judgment that Ps are not entitled to an award of administrative costs as a matter of law. - 2 -
1. Held: R never took a position in the administrative proceeding as provided by sec. 7430(c)(7)(B), I.R.C., because Ps never received a notice of decision from the Appeals Office and R never sent Ps a notice of deficiency. Consequently, Ps do not qualify as prevailing parties under sec. 7430(c)(4), I.R.C.
2. Held, further, the meaning of term “notice of deficiency” under sec. 7430(c)(7), I.R.C., is the same as its meaning under sec. 6212(a), I.R.C.
3. Held, further, the proposed notice of deficiency that was never approved and never sent to Ps is not a notice of deficiency for purposes of sec. 7430(c)(7), I.R.C.
James R. Mikes, for petitioners.
Michael D. Zima, for respondent.
OPINION
KROUPA, Judge: This matter is before the Court on
respondent’s motion for summary judgment under Rule 121.1 The
sole issue for decision is whether petitioners are entitled to
reasonable administrative costs under section 7430 for expenses
incurred in proceedings within the Internal Revenue Service (IRS)
regarding their 1993 and 1994 Federal income taxes. For the
1 Unless otherwise indicated, all Rule references are to the Tax Court Rules of Practice and Procedure, and all section, chapter, and subtitle references are to the Internal Revenue Code. - 3 -
reasons explained below, we find that petitioners are not
entitled to administrative costs.
Background
Petitioners are James R. Mikes (Mikes), Deborah A. Hamilton
(Hamilton), Florida Country Clubs, Inc. (FCC), and Suncoast
Country Clubs, Inc. (SCC). FCC and SCC are corporations that
elected to be taxed under subchapter S for 1993, 1994, and 1995.
Mikes and Hamilton were married and filed joint returns for those
years, and they were shareholders of the corporations.2
Respondent commenced an audit of FCC for the years 1993 and
1994 in December 1995, to examine, inter alia, certain claimed
depreciation expenses and a possible understatement of gross
receipts. In 1996 respondent expanded the audit for those years
to include Mikes, Hamilton, and SCC. The audit encompassed, in
addition to the depreciation deductions, the deductibility of net
operating losses as well as interest income and expenses claimed
by petitioners on account of certain loans. In May 1999, the
audit was further widened to include the year 1995 for all
petitioners.
On September 23, 1997, respondent sent petitioner FCC a 30-
day letter proposing to increase the income reported on its 1993
and 1994 returns in the amounts of $1,168,554 and $44,219,
2 At the time the petition was filed, petitioners Hamilton and Mikes resided in Florida and the principal place of business of the corporate petitioners, FCC and SCC, was also in Florida. - 4 -
respectively. On October 3, 1997, 30-day letters were sent to
SCC, Mikes, and Hamilton. The letters proposed to increase
Mikes’s and Hamilton’s income for 1993 and 1994 by the amounts of
$2,680,313 and $2,253,256 respectively and to increase the income
of SCC by $272,840 for 1993 and $74,426 for 1994. Those proposed
changes would have resulted in deficiencies for Mikes and
Hamilton of $398,101 for 1993 and $130,892 for 1994.
On March 27, 1998, a reviewer in respondent’s Quality
Measurement Staff submitted a proposed notice of deficiency (the
reviewer’s proposal) with respect to the 1993 and 1994 Federal
income tax returns of Mikes and Hamilton. The reviewer’s
proposal was to be reviewed by the Office of District Counsel
(District Counsel) in Jacksonville, Florida. The reviewer’s
proposal recommended an increase in the income reported on the
1993 and 1994 returns of FCC and SCC and also proposed increases
to the income reported on the 1993 and 1994 returns of Mikes and
Hamilton in the amounts of $2,698,549 and $2,300,647,
respectively.
On May 29, 1998, District Counsel rejected the reviewer’s
proposal and advised her to obtain petitioners’ agreement to
extend the statutory period of limitations for assessment, which
would allow the staff time to further explore the facts of the
case. Petitioners consented to extend the statutory period of
limitations until June 30, 1999. Consequently, respondent did - 5 -
not send petitioners any notice of deficiency, nor did respondent
issue the reviewer’s proposal to petitioners.
During 1998 and 1999, respondent issued to each petitioner
at least three revised 30-day letters proposing adjustments to
their 1993 and 1994 reported income. Upon receipt of the final
30-day letters, petitioners protested the proposed adjustments to
respondent’s Appeals Office.
The parties settled the case sometime in April 2000, without
respondent issuing either a notice of deficiency or an Appeals
Office notice of decision. Pursuant to the settlement, the
parties agreed that petitioners owed no additional taxes for
either 1993 or 1994 and in fact were entitled to a refund for
1995.
Petitioners filed a request for administrative costs under
section 7430 with respondent, and respondent denied their request
on February 28, 2002. Consequently, petitioners timely filed
their petition with this Court on May 29, 2002, under section
7430(f) and Rule 271, for administrative costs they incurred
after January 18, 1999.3
On May 27, 2003, respondent filed a motion for summary
judgment claiming that petitioners were not entitled, as a matter
3 Jan. 18, 1999, is the effective date for the amendments to sec. 7430(c)(2) under the Internal Revenue Service Restructuring and Reform Act of 1998 (RRA 1998), Pub. L. 105-206, sec. 3101(b), 112 Stat. 728. - 6 -
of law, to recover administrative costs because respondent never
took a “position” in the proceedings.
Summary judgment is intended to expedite litigation and
avoid unnecessary and expensive trials. Fla. Peach Corp. v.
Commissioner, 90 T.C. 678, 681 (1988). Summary judgment may be
granted where there is no genuine issue of any material fact and
a decision may be rendered as a matter of law. Rule 121(a) and
(b); see Sundstrand Corp. v. Commissioner, 98 T.C. 518, 520
(1992), affd. 17 F.3d 965 (7th Cir. 1994); Zaentz v.
Commissioner, 90 T.C. 753, 754 (1988). The moving party bears
the burden of proving that there is no genuine issue of material
fact, and factual inferences will be read in a manner most
favorable to the party opposing summary judgment. Dahlstrom v.
Commissioner, 85 T.C. 812, 821 (1985); Jacklin v. Commissioner,
79 T.C. 340, 344 (1982). When a motion for summary judgment is
made and properly supported, the adverse party may not rest upon
mere allegations or denials of the pleadings but must set forth
specific facts showing that there is a genuine issue for trial.
Rule 121(d). We conclude that there is no genuine issue of
material fact precluding us from resolving the question raised in
respondent's motion.4
4 No hearing was requested, and none is required. Rule 232(a). We therefore dispose of the petition without a hearing or further written submissions. - 7 -
Discussion
Section 7430 has been amended several times since it was
enacted in 1982.5 Which provisions (and therefore which
amendments) apply in a given case depends on when the proceeding
was commenced and the period within which the claimed costs were
incurred. Because this proceeding was commenced on May 29, 2002,
and the costs were incurred after January 18, 1999, the
amendments to section 7430(c)(2) made by the Internal Revenue
Service Restructuring and Reform Act of 1998 (RRA 1998), Pub. L.
105-206, sec. 3101(b), 112 Stat. 727 apply. In addition, we are
asked to interpret the amendment in 1996 to section 7430(c)(4)
made by the Taxpayer Bill of Rights 2 (TBOR 2), Pub. L. 104-168,
secs. 701-704, 110 Stat. 1463-1464.
We begin by discussing the general, operative provisions of
section 7430, then discuss the amendments made in TBOR 2 and RRA
1998. We then analyze the arguments each party made, and we
conclude that petitioners cannot recover administrative costs.
5 Sec. 7430 was enacted in 1982 to allow certain prevailing parties to recover reasonable litigation costs (but not administrative costs) in cases brought by or against the United States to determine, collect, or refund any tax, interest, or penalty. The Tax Equity and Fiscal Responsibility Act of 1982, Pub. L. 97-248, sec. 292(a), 96 Stat. 572. Sec. 7430 was expanded in 1988 to allow for the recovery of reasonable administrative costs. The Technical and Miscellaneous Revenue Act of 1988 (TAMRA), Pub. L. 100-647, sec. 6239(a), 102 Stat. 3743-3746. - 8 -
I. Section 7430
Recovery of administrative costs is governed by section
7430(a), which permits a taxpayer who is a “prevailing party” in
any administrative proceedings brought by or against the United
States to recover reasonable administrative costs incurred by him
or her in connection with such proceedings. See sec. 7430(a)(1).
To be a “prevailing party”, the taxpayer must, inter alia,
substantially prevail with respect to the amount in controversy
or the most significant issue or set of issues presented. Sec.
7430(c)(4)(A).6 A taxpayer will not qualify as a prevailing
6 SEC. 7430(c) provides in part:
(4) Prevailing party.--
(A) In general.–-The term “prevailing party” means any party in any proceeding to which subsection (a) applies (other than the United States or any creditor of the taxpayer involved)--
(i) which–-
(I) has substantially prevailed with respect to the amount in controversy, or
(II) has substantially prevailed with respect to the most significant issue or set of issues presented, and
* * * * * * *
(B) Exception If United States Establishes That Its Position Was Substantially Justified.--
(i) General Rule.–-A party shall not be treated as the prevailing party in a proceeding to which subsection (a) applies if the United States establishes (continued...) - 9 -
party, however, if the Government establishes that “the position
of the United States” was substantially justified. See sec.
7430(c)(4)(B). The “position of the United States” is, in turn,
defined in section 7430(c)(7) as the position taken by the
Government in an administrative proceeding as of the earlier of:
(1) The date of receipt by the taxpayer of the notice of decision
of the Appeals Office, or (2) the date of the notice of
deficiency. Thus, prior to the issuance of a notice of
deficiency or an Appeals Office decision, the Government is not
considered as having taken any position. See, e.g., Richardson
v. Commissioner, T.C. Memo. 1991-427 (“we cannot consider the
conduct of the revenue agent prior to * * * [date of notice of
deficiency].”); Nathaniel v. United States, 69 AFTR 2d 456, 92-1
USTC par. 50,023 (E.D. Cal. 1991) ("The plain language of section
7430(c)(7) precludes the court from considering the position
taken by the United States in the administrative proceedings * *
* [prior to] the date of a notice of deficiency or the date of
the receipt by the taxpayer of a notice of a decision of the
Office of Appeals").
Respondent argues that because no notice of deficiency or
Appeals Office decision was ever issued to petitioners, no
“position of the United States” had been taken that can be shown
6 (...continued) that the position of the United States in the proceeding was substantially justified. - 10 -
to be substantially justified under section 7430(c)(4)(B).
Accordingly, respondent contends, petitioners cannot qualify as a
prevailing party under section 7430(c)(4) and cannot therefore
recover administrative costs.
Respondent’s contention presupposes, of course, that before
a taxpayer can qualify as a “prevailing party” under section
7430(c)(4), the Government must take a position as defined in
section 7430(c)(7), i.e., issue a notice of deficiency or an
Appeals Office decision. This is the first time we are asked to
determine this issue since section 7430(c)(4) was amended by TBOR
2 in 1996, and we turn to it now.
A. Pre TBOR 2 Section 7430(c)(4)
Prior to the TBOR 2 amendment to section 7430(c)(4), the
taxpayer had to substantially prevail and, in addition, had the
burden of establishing that the “position of the United States”
in the proceedings was not substantially justified.7 If the
7 Prior to the TBOR 2 amendment, sec. 7430(c)(4) read, in relevant part, as follows:
SEC. 7430(c)(4). Prevailing Party.--
(A) In General.–-The term “prevailing party” means any party in any proceeding to which subsection (a) applies (other than the United States or any creditor of the taxpayer involved)--
(i) which establishes that the position of the United States in the proceeding was not substantially justified,
(continued...) - 11 -
Government had not taken a position as defined in section
7430(c)(7), the taxpayer could not meet his or her burden of
showing that such position was not substantially justified and
could not recover administrative costs. See Ball v.
Commissioner, T.C. Memo. 1995-520 (noting that section 7430(c)(7)
“does not allow an award of administrative costs for a position
* * * [the Commissioner] takes before * * * [the Commissioner]
issues the notice of deficiency or Appeals issues a notice of
decision”); In re ACME Music Co., 208 Bankr. 838, 842 n.3 (Bankr.
W.D. Pa. 1997) (“until * * * [an Appeals Office decision] is
received by a taxpayer or a deficiency notice is issued, the
I.R.S. does not take any position in an administrative proceeding
and administrative costs cannot be recovered in any event”).
B. TBOR 2 Amendment to Section 7430(c)(4)
Congress amended section 7430(c)(4) in TBOR 2 to shift to
the Government the burden of establishing that its position was
substantially justified. Congress shifted the burden by amending
section 7430(c)(4)(B) to provide that a taxpayer cannot be a
prevailing party if the Government demonstrates that its position
7 (...continued) (ii) which--
(I) has substantially prevailed with respect to the amount in controversy, or
(II) has substantially prevailed with respect to the most significant issue or set of issues presented, and * * * - 12 -
was substantially justified. In doing so, it eliminated any
direct reference to the “position of the United States” in
section 7430(c)(4)(A). In its current form, therefore, the
language of section 7430(c)(4)(A) only requires that the taxpayer
show that he or she substantially prevailed.8 Although the
language of section 7430(c)(4)(A) no longer mentions the
“position of the United States”, we interpret the section to
require that such a position be taken before a taxpayer can
qualify as a prevailing party.
We interpret the language of section 7430(c)(4) by examining
all subsections of section 7430. It is a central tenet of
statutory construction that, when interpreting any one provision
of a statute, the entire statute must be considered. See, e.g.,
Lexecon Inc. v. Milberg Weiss Bershad Hynes & Lerach, 523 U.S.
26, 36 (1998); Huffman v. Commissioner, 978 F.2d 1139, 1145 (9th
Cir. 1992) (The guiding principle in analyzing the plain meaning
of section 7430 is that the entire statute must be examined as a
whole, with all of its sections and subsections in mind), affg.
T.C. Memo. 1991-144. We turn now to analyzing section
7430(c)(4).
8 In order to be a “prevailing party,” a taxpayer must also satisfy certain net worth requirements. See sec. 7430(c)(4)(A)(ii). The net worth requirements are not at issue, however, in this motion for summary judgment action. - 13 -
Subparagraphs (A) and (B) of section 7430(c)(4) together set
forth circumstances in which a taxpayer is allowed to recover
administrative costs. Under subparagraph (A), a taxpayer who
substantially prevails with respect to the amount in controversy
or issues presented will be a prevailing party unless the
Government shows, under subparagraph (B), that its position was
substantially justified. Subparagraph (B) of section 7430(c)(4)
is not independent from subparagraph (A) but is instead a
condition on which the recovery of administrative costs depends.
If the Government establishes that its “position” was
substantially justified, the taxpayer cannot be a prevailing
party. Thus, even though the TBOR 2 amendment removed any direct
reference to the term “position” in section 7430(c)(4)(A), there
still must be an analysis of whether the Government has taken a
position as that term is defined in subsection (c)(7) in
evaluating whether a taxpayer is a prevailing party under
subsection (c)(4).
Indeed, any contrary construction–-that a “position” as
defined in section 7430(c)(7) is not necessary for a taxpayer to
qualify as a “prevailing party”–-would run contrary to the
purpose behind the TBOR 2 amendment. If no “position” is
required, taxpayers would always qualify as prevailing parties
before a notice of deficiency or Appeals Office decision had been
issued. This would result from the Government’s inability to - 14 -
show that the stance it had taken in the proceedings was
substantially justified because it would not be considered to
have taken a “position” under section 7430(c)(7). Taxpayers
would therefore be able to recover administrative costs incurred
before the issuance of a notice of deficiency or Appeals Office
decision, whether or not the Government’s position was
substantially justified. There is no indication that the TBOR 2
amendment was designed to have such an effect.
The TBOR 2 amendment sought to shift to the Government the
“burden of proof to establish that it was substantially justified
in maintaining its position against the taxpayer.” H. Rept.
104-506, at 37 (1996), 1996-3 C.B. 49, 85. There is no
indication that the amendment was intended, in addition to
shifting the burden to the Government, to prevent the Government
from showing that its position was substantially justified.
Likewise, nothing in the legislative history to TBOR 2
suggests that the amendment to section 7430(c)(4)(A) was intended
to alter the effect of section 7430(c)(7). We have previously
found that the effect of subsection (c)(7) is to “protect the
Commissioner from claims by taxpayers that positions taken by,
for example, the Examination or Collections Division personnel,
before issuance of a notice of deficiency or of the decision of
Appeals, are not substantially justified.” Ball v. Commissioner, - 15 -
supra.9 The TBOR 2 amendment to section 7430(c)(4) is consistent
with the congressional intent of immunizing the Government
against claims for costs until the IRS’s position has
crystallized in an Appeals Office decision or notice of
deficiency.
II. The Parties’ Arguments
Respondent maintains that since no Appeals Office decision
or notice of deficiency was ever issued to petitioners,
petitioners do not qualify as “prevailing parties” for purposes
of section 7430(c)(4) and cannot recover administrative costs.10
In response, petitioners assert that respondent did take a
“position”. Respondent’s position was manifested in: (1) The
9 Sec. 7430(c)(7) serves to protect the IRS from liability before the Appeals Office gets involved. The Appeals Office is the forum for the compromise of disputes between taxpayers and the IRS, and it is the first stage within the IRS at which the proposed adjustments are fully reviewed and which expressly takes into account the hazards of litigation. 10 We disagree with respondent that Estate of Gillespie v. Commissioner, 103 T.C. 395 (1994), and Belshee v. Commissioner, T.C. Memo. 1999-380, establish that petitioners are not entitled to recover costs prior to the issuance of a notice of deficiency or an Appeals Office decision. These cases denied the taxpayers’ requests to recover costs on the grounds that such costs were not incurred during a period for which recovery was permitted under sec. 7430(c)(2). These cases did not address whether the taxpayers were prevailing parties under subsec. (c)(4). Furthermore, these cases were decided on the basis of sec. 7430(c)(2) before it was amended by RRA 1998 to allow taxpayers to recover costs incurred on or after the date of mailing of the first letter of proposed deficiency. Because we interpret sec. 7430(c)(2) in light of its amendment by RRA 1998, the logic of Estate of Gillespie and Belshee is not dispositive of whether petitioners are entitled to recover administrative costs. - 16 -
30-day letters sent to petitioners during September and October
of 1997;11 and (2) the reviewer’s proposal, dated March 27, 1998.
A. The Initial 30-Day Letters
Although petitioners acknowledge respondent issued 30-day
letters to them during September and October of 1997, petitioners
fail to develop this theory or make any comprehensible argument
regarding the 30-day letters. Congress amended section 7430(c)
in RRA 1998 to incorporate 30-day letters. We now address
whether our conclusion that administrative costs are not
recoverable unless the Government takes a “position” either in a
notice of deficiency or an Appeals Office decision is at odds
with the RRA 1998 amendment to section 7430(c).
In RRA 1998, Congress amended section 7430(c)(2), which
defines the term “reasonable administrative costs”, to include
costs incurred from the “the date on which the 1st letter of
proposed deficiency [the 30-day letter] which allows the taxpayer
an opportunity for administrative review in the Internal Revenue
Service Office of Appeals is sent.” Sec. 7430(c)(2). Prior to
the RRA 1998 amendment, “reasonable administrative costs” were
limited to those incurred after the date of the notice of
deficiency or Appeals Office decision (i.e., the same instances
11 Petitioners’ arguments with respect to the 30-day letter are confusing and incomprehensible. Because 30-day letters were issued in this case, we take this opportunity to address the amendment RRA 1998 made to sec. 7430(c)(2). - 17 -
in which the Government is defined as having taken a position
under section 7430(c)(7)). The RRA 1998 amendment, therefore,
expanded the definition of “reasonable administrative costs” to
include costs incurred from an earlier date. While the RRA 1998
amendment moves the point in time in which administrative costs
come within section 7430(c)(2), the RRA 1998 amendment does not
move the point in time in which the Government is considered to
have taken a position in section 7430(c)(7). Accordingly, the
RRA 1998 amendment does not permit recovery of administrative
costs in situations where no notice of deficiency or Appeals
Office decision has been issued.
Our interpretation of the RRA 1998 amendment to section
7430(c)(2) is consistent with section 7430(c)(4). First,
paragraphs (4) and (2) of subsection (c) serve different
functions in the statutory scheme governing the recovery of
administrative costs. Section 7430(c)(4) governs the
determination of whether a taxpayer is a prevailing party
entitled to recover administrative costs. Section 7430(c)(2), on
the other hand, defines what costs are recoverable by a taxpayer
who otherwise qualifies as a prevailing party under section
7430(c)(4). Stated simply, if a taxpayer does not qualify as a
prevailing party (e.g., because the Government never took a
“position” under 7430(c)(7) by issuing a notice of deficiency or
Appeals Office decision), he or she cannot recover any - 18 -
administrative costs, regardless of when such costs were
incurred.
Further, while the legislative history to the RRA 1998
amendment contains language that may be interpreted to include
the 30-day letter among the instances in which the Government
will be considered to have taken a “position”, such an
interpretation is inconsistent with the plain language of section
7430(c)(7). In addition, such an interpretation is contrary to
congressional action taken during the legislative process in
enacting the RRA 1998 amendment to section 7430.
The House and Senate reports accompanying the RRA 1998
amendment to section 7430 contain the following language:
The Committee believes that taxpayers should be allowed to recover the reasonable administrative costs they incur where the IRS takes a position against the taxpayer that is not substantially justified, beginning at the time that the IRS establishes its initial position by issuing [the 30-day letter] * * *. S. Rept. 105-174 at 47 (1998), 1998-3 C.B. at 537, 583; H. Rept. 105-134 (1997), 1998-3 C.B. 373, 430.
This legislative history can be read as extending the period
for accrual of recoverable costs under section 7430(c)(2) to the
date on which the 30-day letter is sent. This legislative
history cannot be as easily read as indicating Congress’s intent
to alter the time at which the Government is considered to have
taken a section 7430(c)(7) “position” for purposes of section
7430(c)(4). Indeed, the Statement of Managers (Conference
Report) to the RRA 1998 amendment to section 7430 merely states - 19 -
that the bill “[m]oves the point in time after which reasonable
administrative costs can be awarded to the date on which the
* * * [30-day letter] is sent”. H. Conf. Rept. 105-599, at 243
(1998), 1998-3 C.B. 747, 997.
Any interpretation that the 30-day letter constitutes a
“position” of the Government conflicts with the plain language of
section 7430(c)(7). The language of section 7430(c)(7) does not
include the 30-day letter among the instances in which the
Government is considered to have taken a “position”. Rather, the
“position” of the Government is defined as that taken in the
notice of deficiency or Appeals Office decision. It is an
established rule of statutory construction that where there is a
conflict between portions of the legislative history and the
words of the statute, the language in the statute controls. In
re Sinclair, 870 F.2d 1340, 1341 (7th Cir. 1989). The words
Congress chooses to put in the statute “represent the
constitutionally approved method of communication.” Kaiser Steel
Corp. v. Pearl Brewing Co., 952 F.2d 1230, 1241 (10th Cir. 1991);
Lenz v. Commissioner, 101 T.C. 260, 268 (1993). “[U]nequivocal
evidence” of legislative purpose reflected in the legislative
history is required “to override the ordinary meaning of the
statute.” Kaiser Steel Corp. v. Pearl Brewing Co., supra at 1241.
In this case, not only is “unequivocal evidence” in support of
reading the 30-day letter into subsection (c)(7) clearly absent, - 20 -
but several factors support the opposite conclusion–-Congress
specifically rejected adding the 30-day letter to the instances
in which the Government is considered to have taken a position.
The first factor we rely upon to find that Congress
specifically rejected adding the 30-day letter to the definition
of “position” in section 7430 is that Congress failed to amend
subsection (c)(7) in RRA 1998 even though Congress amended
subsection (c)(2) to include within the definition of “reasonable
administrative costs” those costs incurred on or after the date
on which the 30-day letter is sent. “Where language is included
in one section of a statute but omitted in another section of the
same statute, it is generaly presumed that the disparate
inclusion and exclusion was done intentionally and purposely.”
United States v. Lamere, 980 F.2d 506, 513 (8th Cir. 1992); see
also 2B Singer, Sutherland Statutory Construction, sec. 51.02, at
122-123 (5th ed. 1992). More substantial evidence exists here to
persuade us that we cannot attribute Congress’ failure to amend
subsection (c)(7) to mere congressional inadvertence or
oversight.
First, the original version of the RRA 199812 amendment to
section 7430 included an amendment to subsection (c)(7) that
mirrored that of subsection (c)(2). This proposed amendment
12 RRA 1998 was originally introduced as the Internal Revenue Service Restructuring and Reform Act of 1997. H.R. 2292, 105th Cong., 1st Sess. (1997). - 21 -
would have added the issuance of the 30-day letter to the
instances in which the Government is defined as having taken a
“position”. See H.R. 2292, sec. 301(B), 105th Cong., 1st Sess.
(1997); S. 1096, sec. 301(B), 105th Cong., 1st Sess. (1997).
This proposed amendment to subsection (c)(7) never became law,
however. It was omitted from subsequent versions of the bill.
In instances such as this, where language is included in an
earlier version of a bill but is deleted prior to enactment, we
may presume that the deletion was intentional. See Keene Corp.
v. United States, 508 U.S. 200, 208 (1993); Russello v. United
States, 464 U.S. 16, 23-24 (1983). At a minimum, the attempt to
amend subsection (c)(7) demonstrates that Congress was aware of
this provision, but chose not to amend it.
Further, Congress received testimony from both the
Administration and the private sector during congressional
hearings on the RRA 1998 amendment to section 7430. See
testimony of Donald Lubick, Assistant Secretary of Treasury (Tax
Policy), Hearings on H.R. 2292, 105th Cong., 1st. Sess. (Sept.
26, 1997). The American Bar Association (Tax Section)
specifically requested that Congress amend section 7430(c)(7) to
add the 30-day letter to the situations in which the Government
is defined as having taken a position. See testimony of Pamela
F. Olson, Vice Chair, Committee Operations, Section of Taxation,
American Bar Association, Hearings on H.R. 2292, 105th Cong., 1st - 22 -
Sess. (Sept. 26, 1997), reprinted in 97 TNT 188-76 (“We
recommend that Congress also amend the definition of ‘position of
the United States’ * * * [to refer] to the date of the issuance
of the first notice of proposed deficiency”). Despite having the
specific fact called to Congress’s attention, Congress passed the
RRA 1998 legislation without making any conforming amendment to
section 7430(c)(7).
Moreover, we are mindful that the RRA 1998 amendment to
section 7430 is not the first time Congress rejected adding the
30-day letter to section 7430(c)(7). The first time Congress
rejected adding the 30-day letter to section 7430(c)(7) was in
TAMRA in 1988. The Senate amendment in TAMRA to section
7430(c)(7) would have included the 30-day letter as a “position”
of the Government under section 7430(c)(7). As with the proposed
RRA 1998 amendment to section 7430(c)(7), Congress rejected the
proposed amendment to section 7430(c)(7) in TAMRA. See H. Conf.
Rept. 100-1104 (Vol. II), at 225-226 (1988), 1988-3 C.B. 473,
715-716. In addition, despite the numerous amendments to section
7430 since the section was first enacted in 1982, the “position
of the United States” has never been defined in section
7430(c)(7) to include the 30-day letter. We find this fact
compelling.
If Congress had wanted the “position of the United States”
to include the 30-day letter, it could have explicitly said so. - 23 -
This Court is “not at liberty to supply by construction what
Congress has clearly shown its intention to omit.” Carey v.
Donohue, 240 U.S. 430, 437 (1916); see also INS v.
Cardoza-Fonseca, 480 U.S. 421, 442-443 (1987) (“Few principles of
statutory construction are more compelling than the proposition
that Congress does not intend sub silentio to enact statutory
language that it has earlier discarded in favor of other
language"). The fact that Congress considered an amendment to
section 7430(c)(7) to allow recovery of administrative costs in
situations before the issuance of a notice of deficiency or
Appeals Office decision, but chose not to do so convinces us that
it would be inappropriate to interpret the RRA 1998 amendment of
section 7430(c)(2) by grafting a concomitant amendment onto
Finally, we note that neither section 7430(c)(2) nor section
7430(c)(7) is rendered meaningless, or is otherwise contradicted,
by the other. All parts of a statute must be read together, and
each part should be given its full effect. See McNutt-Boyce Co.
v. Commissioner, 38 T.C. 462, 469 (1962), affd. per curiam 324
F.2d 957 (5th Cir. 1963). We find no reason why the language of
each should not be given its full effect. Accordingly, we
interpret section 7430(c)(7) to limit recovery of administrative
costs to those situations in which a notice of deficiency or
Appeals Office decision has been issued. In these situations and - 24 -
these situations alone, section 7430(c)(2) allows for the
recovery of administrative costs incurred from the date of the
30-day letter.
B. The Reviewer’s Proposal
Petitioners claim that respondent did take a “position” as
manifested in the reviewer’s proposal. Specifically, petitioners
argue that the reviewer’s proposal constitutes a “notice of
deficiency” for purposes of section 7430(c)(7) and that,
accordingly, the date on which it was submitted for review to the
District Counsel, namely March 27, 1998, is the date on which
respondent took a position. We disagree.
The reviewer’s proposal is not a notice of deficiency for
purposes of section 7430(c)(7). A statutory notice of deficiency
has a specific, technical meaning. A “notice of deficiency” is
defined in section 6212(a) as a notice from the Secretary sent to
the taxpayer by certified or registered mail in which the
Secretary has determined that there is a deficiency in respect of
any tax imposed by subtitle A or B or chapter 41, 42, 43, or 44.
See Shut Out Dee-Fence, Inc. v. Commissioner, 77 T.C. 1197, 1200-
1201 (1981). The plain language of section 6212(a) requires that
the notice, at a minimum, indicate that the Commissioner
determined that a deficiency exists for a particular year,
specify the amount of the deficiency, and be sent to the - 25 -
taxpayer. See Benzvi v. United States, 787 F.2d 1541 (11th Cir.
1986).
In this case, respondent never determined a deficiency for
any particular year and never sent the reviewer’s proposal to
petitioners. Accordingly, the reviewer’s proposal does not
constitute a “notice of deficiency” within the meaning of section
7430(c)(7). See also Estate of Gillespie v. Commissioner, 103
T.C. 395, 397 (1994) (30-day letter not a notice of deficiency
for purposes of section 7430).
Petitioners further contend that the term “notice of
deficiency” in section 7430(c)(7) should not be given the same
meaning it has under section 6212, and that for purposes of
section 7430(c)(7)(B)(ii) it is inconsequential that the
reviewer’s proposal was neither issued nor sent to them. Again,
we disagree.
We have previously found, and the Regulations provide, that
the meaning of the term “notice of deficiency” in section 7430(c)
is the same as the meaning of that term in section 6212. See
Estate of Gillespie v. Commissioner, supra; sec. 301.7430-
3(c)(3), Proced. & Admin. Regs.. Under well-established rules of
statutory construction, identical words used in different parts
of the same statute are to be given a similar meaning in the
absence of a contrary legislative intent. See Helvering v.
Stockholms Enskilda Bank, 293 U.S. 84, 87 (1934). We find no - 26 -
reason for interpreting the term “notice of deficiency” in
section 7430(c)(7) differently from the meaning of that term
under section 6212. See Barnhill v. Johnson, 503 U.S. 393, 406
(1992); Sorenson v. Secy. of Treasury, 475 U.S. 851, 860 (1986).
C. Conclusion
In conclusion, given that petitioners were never issued a
notice of deficiency or an Appeals Office notice, we find that
respondent never took a position for purposes of section
7430(c)(4) and that petitioners are therefore not “prevailing
parties” entitled to recover administrative costs under section
7430(a).
We have considered all of petitioners’ contentions and
arguments. To the extent any contention or argument is not
discussed, we find it to be without merit and/or irrelevant.
To reflect the foregoing,
An appropriate order and
decision will be entered.